Alternative Model of Russian Gasoline Prices Regulation – Proposed in the New Study by VYGON Consulting

Aug 8, 2018

In May 2018 wholesale motor fuel prices exceeded retail – a landmark event for the Russian fuel market, which did not pass the test of resilience with a sharp change in the balance of oil prices and ruble exchange rate. Containment of retail motor fuel prices by the state led to losses at refineries and gas stations.

The urgent excise tax reduction, which came into force in June 2018, has not changed the situation fundamentally. Oil refineries and gas stations remain the vulnerable elements of the system as they cover the price spread between the state-constrained retail and the market-based wholesale. The compensatory mechanisms developed within the framework of the tax maneuver are imperfect and do not guarantee future financial sustainability of refineries and gas stations.

The search for an optimal regulatory model for the fuel market is a complex task. It should ensure the stability of retail prices, the sustainability of gasoline sales business and the predictability of budget revenues. In the first half of 2018 none of the above conditions were met and the planned excise tax increase in 2019 could lead to an even greater imbalance.

In the VYGON Consulting research “Gasoline prices: back to the USSR?” company analysts studied the global trends in gasoline pricing; identified Russian specifics of motor fuel price formation, in particular estimated the real tax share in the retail gasoline price; analyzed the reasons of the imbalance at the domestic market in 2018, and also formed scenarios for gasoline prices in 2019, assessed their impact on the economy of oil refining and proposed an alternative model of domestic gasoline prices regulation.

The executive summary of the study is available at: https://vygon.consulting/en/products/issue-1394/

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